INNOVATIVE mortgage broker Rea Mortgages is to shut down due to the collapse in the home-loans market.
Founded by American Richard Eberle, the firm was named 'The Investor' magazine's 'Mortgage Broker of the Year' three times in a row. At its peak the brokerage arranged mortgages worth €350m.
The move by Mr Eberle to liquidate the business will not impact on anyone who had a mortgage arranged through REA, and a skeleton staff will continue to operate to complete applications from people who have loan offers from lenders.
REA tried to break the mould in the mortgage market by asking customers to pay a fee in return for the brokerage checking out the market and recommending the best product, Mr Eberle said.
As part of the fee, the customer was also provided with the conveyancing services of a solicitor. A €2,500 fee was typical, he said.
The commission due to REA was then refunded to the customer, with REA sharing the fee with the solicitor.
On a €250,000 mortgage, the commission would have been around €2,500 before lenders slashed fees earlier this year.
Mr Eberle said yesterday that consumers were reluctant to pay a fee even though they got the commission money returned to them.
"It seems that consumers were not prepared to pay a fee to get the choice and service even though they were getting better value and money back."
Because of this reluctance to pay fees REA was forced to rely on traditional commission-based mortgage provision. But the move by lenders to cut commission rates meant this tipped the business into collapse.
"Market forces are market forces. I feel awfully sorry for the staff," he said.
In a post on www.askaboutmoney.com, Mr Eberle stated: "It is a matter of great regret that REA Mortgage Choice is in the process of winding down our operations.
"This is due to the dramatic downturn in the market. Over the years REA has attempted to introduce choice and service into the Irish mortgage market and I am very proud of the level of service and innovation that REA advisors have brought to their clients."
Mr Eberle said yesterday the business had 16 to 17 staff until recently, down from 38 during the peak in the housing market in 2006.
The mortgage market has gone into stiff decline. Figures from the Central Bank earlier this week showed that the increase in mortgage borrowing in August was just €508m, just over half the figure for July.
The Central Bank said there was no sign that falls in house prices were boosting mortgage lending. Annual rates of growth in mortgage lending dropped to its lowest level in 21 years in August.